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Just when it looks as if no more bulls can fit on the bandwagon, another herd hops aboard. The latest Crowd Sentiment Poll compiled by Ned Davis Research has now broken through 70 to a reading of 70.9. This level rivals the most extreme readings of this contrarian indicator over the last 10 years. The measure is a proprietary compilation of sentiment measures, and NDR has published the Sentiment Poll long enough for it to have a track record. Right now, the record says, "Watch out."

The accompanying bar chart shows why it pays for investors to take note of this flashing yellow light. Since 1995, whenever the NDR Crowd Sentiment breaks 70, the average S&P 500 return has been -16.9%. That average includes two market crashes during the period, but it’s clear from the first chart that extreme readings are associated with market pullbacks.

Like so many sentiment indicators we follow, the NDR Crowd Sentiment Poll shows a level of optimism that could well leave latecomers to this market singing the blues.